We were once presented with a nostalgic journey into the delicious street foods of Mumbai – it was a creative venture seeking to spread its culinary art in the United States after significant success in India. Recalling the series of complexities and client education necessary in that transaction highlights the need for better bilateral relationship between the two countries, especially to strengthen its economic ties.

The transaction was further complicated by the fact that there were policy driven legal hurdles in establishing organizational documents, transactional agreements (including licensing, manufacturing, and distributorship) that would be difficult to make entirely compatible in both countries and formulated in a tax-efficient manner. Part of these issues stemmed from the fact that India has historically made its policies and laws highly favorable only to domestic operations and services. For U.S. law firms, there are significant restrictions on establishing continuous foreign law practice in India which significantly burdens establishing intercontinental offices and providing legal services as efficiently. 

In the income tax and estate planning fields, Indian business owners are oftentimes not apprised of the severe negative tax consequences of taking their business to the United States without proper counsel. Our collaborations with proficient Indian counsel have helped us navigate laws imposing  significant restrictions on  holding and transferring business interests through trusts (an otherwise common strategy in the U.S.) under India laws, for example. If not structured property, the business may have taxable U.S. assets subject to U.S. taxes, including being subject to U.S. Estate Taxes (for nonresident decedents too). 

Working closely with counsel in India was key to successfully structuring the transaction. Intellectual property protections – especially with considering international trademark issues, was critical to both the asset protection needed for the businesses as well as the business valuation for tax purposes, including for potential gift and estate tax considerations on potential transfers.

Firms well-versed in navigating these cross-border issues are familiar with creating blocker entities, holding companies, and allocating asset values in tax-favorable ways to limit liabilities, among other strategies, but the complexities may be alleviated if better bilateral agreements are established between India and the United States which included more tax favorable provisions and alleviated some of the restrictions on legal service providers so that the India-US can transact businesses as robustly as some of the U.S. partnerships with Canada, Mexico, or parts of Europe. On the other hand, such changes may create more complications. In the meantime, having a legal team that is familiar with the intercultural, economic, and strategic priorities of both countries and with established relationships with legal professionals in both countries can be the most seamless and robust route for the business entrepreneur seeking to expand into the U.S.  For more information on our business practice, including cross-border and international transactions, see here, and for international estates and administration, see here.